Who's the Worst? Expanded to More Categories

Tuesday October 30 2012

 I decided to start additional categories for Politicians, Admired Figures, and Corporations all of whom are clearly nying for top Honors in the the Ethical Fall From Grace Department. 

It's that time of year, time to look forward to the launch of our spring 2013 Accounting Ethics class. I am always amazed at the crop of candidates each year for the coveted title of, yes, Who's the Worst? I Will be adding to this post as more candidates will no doubt crowd the field in the next two months. Now in no particular order, we begin to assemble what is no doubt an Incomplete list of

The Players.

Rita Crundwell  As Stock Detective  Slim Pickens remarks in Rancho Deluxe most big time crime is an inside job. Rita took  that idea to new heights apparently embezzling some $53 Million from Dixon, Il over the last two decades. Con men and women earn that  moniker by gaining your confidence. Rita did that and more. Confronted by three FBI agents the Mayor notes she never broke down, an amazing feat of bravado in the face of arrest. This is a classic case of why auditors should maintain an air of professional skepticism. Here is the ironic quote.'Rita took care of the City's money like it was her own.' INdeed the dollars did become Rita's. 

Interestingly Dixon had sopme 21 audits during this period. Rita had played on the softball team of the auditor, it is not clear how long that lasted. Needless to say that auditor is now being sued. 

John Corzine   continues his long playing engagement from last year's failure of IMF Global. The fact that a brokerage firm could fail and take the client money with it is unprecedented. Yet Corzine remains free claiming he had no motive to steal money. Really, would some jail time improve your memory?  A broker who took client money used to be banished from the trade if not imprisoned. What's up with this?

Somehow I missed Marc Dreier but Vanity Fair delivers a first person account of yet another Ponzi Scheme. Mark stole some $380 Million form 13 hedge funds. Apparently this one broke just before Madoff, CNBC has an on line report titled Unraveled.

Rajat Gupta  gets two years for leaking insdie tips, Like Corzine he is a former Goldman principal.

In a later related story, Raj Rajaratnam agreed to pay $1.5 M in a civil lawsuit and is waiving his right to appeal. Not to be conffused with Gupta above, this Raj founded the Galleon Group and has paid $63.8 M in criminal penalties and was ordered to pay another $92.8 M in a civil case. How much do you suppose this leaves him with to get by once he is out of prison?

Here is the story on a convicted trader turned FBI Informant. His first work helped convict Rajat Gupta. 

And in the small fry department Mark Mahaney y an 'analyst' at Citi got his firm fined $2 M for leaking Facebook IPO details to a former college chum.

A web of bribery in The Valley has netted Attorney Ray Roman  3.5 years in Federal Prison for bribing Judge Abel Corral Limas. Apparently other officials were involved. 

Do you know Joseph F. 'Chip' Skowron III? He left an elite Harvard medical residency program to start a Hedge Fund. He was soon making millions (why can't you and I do that, keep reading) AT his Front Point fund he was found guilty of insider trading in health care stocks, a burgeoning practice, and sentenced to five years. This is an interesting story of an ambitious person seemingly driven to violate the law. Up to that point apparently he was making money in a legitimate fashion. 

Federal Judge Jane Magnus Stinson described Timothy S. Durham as three words, Deceit, Greed, Arrogance.  Durhams was sentenced to 50 years for defrauding Ohio investors of $250 Million. The prosecution had sought a sentence of 225 years, taking into account 5,122 victims and a loss amount of $250 million, to punish Durham for operating Akron, Ohio-based Fair Finance as a Ponzi scheme. The judge agreed with the loss calculations but gave Durham a shorter sentence that will allow him to serve time concurrently on some of his 12 convictions.

San Antonio attorney Michelle Lorenz Valicek avoids jail over a $500,000 embezzlement. Judge notes she will probably not make probation urging her to 'quit crying, stop hugging your lawyer, and listen to me.'

But back to the big time, as Kweku Adoboli testifies in a trial that finds him accused of a $2.3 billion fraud. Update, Adoboli convicted of fraud.

 Meanwhile in Italy, this conviction is political and incredible,  said former Italian Premier Silvio Berlusconi. Here is a sample photo album of Silvio enjoying quality time with his political supporters. 

Allen Stanford  was sentenced to ten years in his $7 B Ponzi Fraud. 

Texas Monthly uncovered a story you may have missed, the regulators certainly did, miss it that is.  Joseph Blimline accepts a 20 year sentence for running a $500 M Ponzi Scheme in North Dallas. The complete story is available by subscription but you can quickly get the idea. The FBI reports.

In a repeat performance of his earlier ZZZZ Best Fraud Barry Minkow returned to compete in  2009  for Who's the Worst, admittedly it was  2011 when je  sentenced to five years, and asked to return $538 Million to Lennar Homes that he falsely earned. Well when anyone can commit one of the biggest Ponzi fraud IOP schemes ever, get out of jail early, became a pastor and self proclaimed aid to the FBI in uncovering fraud, write a book appropriately titled Clearing Up,  and then do it again himself, don't you think he deserves a place on this August Panel of Stars?

Mathew Martoma won't rat on Steven Cohen, drat but the Feds hate that. Mr. Cohen at SAC Capital Advisers is one of the biggest names in hedge funds. The Feds say it is one of the biggest cases of Insider Trading ever. 

Anthony Chiasson, and Todd Newman  used confidential information they learned from hedge fund analysts. Prosecutors asserted they made tens of millions betting Dell stock would fall before their earnings announcement. Some 71 people have been convicted or plead guilty since the government crackdown on insider trading began August, 2009. Sentencing is set for April 19.

Peter Madoff, Bernie's brother, is sentenced to ten years, denies knowing this  was a Ponzi Scheme. 

John Kinnucan  after taunting Federal authorities for years, pleads guilty and is sentenced for insider trading. 

 

One might think that after all the difficulty of accumulating college hours, and passing the CPA Exam and then keeping CPE current, one would practice high ethical standards to insure one's license was compliant. Well, take a look at recent TSBPA enforcement actions.  There are some candidates for The Player list here as well. Did you know that it is illegal to use the term Accountant in advertising if one is not a Texas CPA, same goes for advertising attest services. Yet every time the Board meets it finds multiple parties guilty of doing just that. 

We generally confine the list to those that have been convicted but this Houston Attorney appears to be guilty. Accused of embezzling $9 Million, he was on the lam for six months, turning himself in after his wife was arrested. The plaintiff's attorney notes that being on the run for six months is not a sign of being cooperative. 

Bouncing Back?

Bernie Madoff E Mails CNBC on the markets.

The original Rogue Trader Nick Lesson who took down Barings Bank, is in demand as a speaker. I wonder if my speaking fees would increase if I bankrupted a major institution?

 

Politically Speaking

Rob Blagojevich  has gone from Illinois Governor to Prison Dishwasher. Wiki  has the details but he was ultimately convicted for trying to sell the Senate Senate held by Barack Obama. Charismatic and photogenic, it is hard to believe Blago got 14 years to do while our next candidate, Jon Corzine is out and about. 

Jesse Jackson Jr. Resigns but  is still the subject of an ongoing ethics investigation. This involves misue  of campaign funds. 

Former New Orleans mayor Ray Nagin  is under investigation. A former City Official, Rodney Williams has pleaded guilty to funnelling money through family owned companies. It appears that Williams left the City, formed a shell company, and then received City Funds thanks to Nagin. 

Update, Ray Nagin has been indicted. What corruption in Louisiana, I am shocked. 

Former General and then CIA Director David Petraeus resigned amid an affair with biographer Paula Broadwell. Typical of the digital age, the affair was exposed via e mail. This article compares the Petraeus Broadwell Affair with Eisenhower and Kay Summersby. The latter came come as a surprise to our younger students not up on that bit of WW II history. 

And in a 'I Like this Czar thiing' moment, Valdimir Putin in his 13th year running Russia endorses the two year jail  sentence for members of the Pussy Riot Band.

It's January 1 and  already we have another addition to our Rogue's Gallery. While our general admisssion rule for this post is someone who has been convicted ,the updated and amended reports make Kenneth Buddy Barfield , an aide to Lt  Gov Dewhurst appear to be guilty. Amended financial  reports from Dewhurst  are $700,000 less than previously thought. Here is the kind of comment usually associated with fraud. Fraud is commited by people who have your confidence, hence this is often called a  'con game.'

“I was shocked when I picked up the paper and saw that story today,” Miller said. “I just couldn't believe it.”

Read more: http://www.mysanantonio.com/news/local_news/article/Dewhurst-adviser-is-tied-to-the-theft-of-at-least-4152358.php#ixzz2GkpvGkrF

Locally Deputy City Manager Pat DiGiovanni receives a letter of admonition for violating the San Antonio  code of Ethics.

These next  two fail the 'smell or appearance test'

Al Gore  has amassed a $100 M fortune since leaving 'public service' ten years ago, and of course like Jack Welch, divorced and is dating, 'raven haired 50 something Elizabeth Keadle.  I don't think there is anything illegal about all this but it is a classic case of a government official mvoing through the revolving door to become quite well to do using his or her connections. Harry Truman simply went home to Misssouri when he retired, All did not go home to Tennessee. Nothinikg illegal here, just a combination of using Public Service to become a multi-millionaire and lose your original wife in the process. 

Al has made a fortune blasting those in the oil business. But he had no qualms about selling his underperforming network for $100 M to Al Jazeera whose revenue source is tied to Mid East Oil. Does anyone see an inconsistency or an inconvenient truth here?

Now we learn that Chinese Prime Minister Wen Jiabao is worth $ 2.7 billion a remarkable accomplishment for the leader of, yes they still call themselves, The People's Republic.   Even his 90 year old Mother is part owner of this largese. 

The Fall From Grace or What Was I Thinkin'?

Lance Armstrong resigns from the Board of Live Strong. 

Lance update, January 15, now Lance believes that only he holds the key to his redemption. This Thursday he will appear with Oprah to apparently discuss his use of drugs when cycling. Read the bizarre story. I can only conclude that Lance Armstrong literally cannot accept being bared from participating in some sport. 

Tiger Woods  takes three years to win another PGA Tournament since....

Arnold Schwarzenegger learns  you really can't go home again. 

Cameron Douglas son of actor Michael Douglas and Grand Dad Kirk,  is surely our ( I am co opting Ron White's comment)  2012 winner of the Ron White You Can't Fix Stupid Award. A Manhattan Judge has sentenced Cameron to another five years in prison for convincing one of his female attorneys to smuggle his drugs inside the prison, among other affronts to the court. This is surely a tragedy for the Douglas Family who has attempted, of course, to have him undergo treatment. 

Ethics and Governance Issues

This is a topic that SARBOX hoped to address. SARBOX greatly strengthened the status of the Audit Committee. It required the CEO and CFO to individually sign off on the financial statements. But, a host of corporate failures since from outright fails like Bear Stearns and Lehman to near death swoons like Goldman and Merrill have been even more spectacular than perhaps Enron. So we begin our list with 

Can Hewlett Packard be saved?   Meg Whitman has been labeled a Celebrity CEO (she was originally the CEO at E Bay, a quite different prospect) and not up to the task of re making former research focused HP. A slew of bad past decisions still dog the firm. Autonomy displays many of the same hallmarks as Enron, like claiming a bunch of folks are working on projects when in fact none are. 

Corporations are embracing ans asking about their positions on social media.  I suspect we will soon see standard corporate policies on social media. 

What does it take to get kicked out of this club anyway?  Goldman pays $1.5 M fine for failing to supervise trader. 

Speaking of which, HSBC pays a  $1.9 billion fine, the third penalty in ten years. This one was for failure to monitor alleged drug money laundering. No individual bankers were prosecuted. As I said in the Goldman reference above, what does it take to get kicked out of this club?  Do such fines that do not result in any individual discomfort to the bankers themselves really mean anthing?  Arguably that was $1.9 B in investor money that might have been used for dividends, will there be a revolt at the shareholder meeting?

And on the same day I ran across the HSBC fine, we have Barclays Spanish unit fined $775,600 for under rating the risk of bonds it sold to clients in 2008. 

Morgan Stanley agreed to pay a $5 Million Fine to settle allegations that one of its highest profile investment bankers tried to improperly influence  analysts days before Facebook FB went public. That would be Michael Grimes the Morgan tech guru who is no doubt still working there. The MA Secretary of the Commonwelath noted that such behavior 'undermines confidence.'  My question to students, $5 M is an inconsequential amount to Morgan and no one was named in the order. No doubt Morgan made a lot more than $5 million as a result of the decision to let it have the lion's share of the business. Is this really a deterrent to such behavior in the future?

 UBS pays a whopping $1.5 billion fine as it admits to fixing LIBOR rates. The result will be a fourth quarter loos for UBS but the stock is trading unchanged. Does this mean investors fail to register any revulsion over such revelations?

In an update to the last post, ex UBS bosses accused of incredible ignorance in failing to uncover the LIBOR scandal. Once again we see the need for a strong internal audit team.

The Facebook IPO was a disaster for all. Here is a retrospective on what went wrong, greed maybe? Note the refernce to underwriter Morgan Stanley above. 

The issue of Dell going private raises the ques03.tion, Who is Mike Dell working for? Michael Dell owns just under 16% of DELL, so no deal is possible without his involvement. But the stock was $18 jsut a year ago, is it ethical to sell out for less than that now?  This raises the question of where does the responsibility of a CEO lie when he is the largest shareholder?  No doubt he will do well, after all he paid nothing for the shares he owns. That is not the case for the stock holders who paid hard cash. Who is the stakeholder?

The Comptroller of the Currency is preparing to take action against J P Morgan.Morgan's London Whale Trader managed to rack up $6 billion in losses. 

In an update on the J P Morgan Whale story above, the FED and the Comptroller of the Currency order JP Morgan to remedy the breakdowns that allowed a $6 billion loss last year. Hmm, one would think this would have occured to management and the shareholders. Another is to beef up anti- money laundering procedures.

 

Audit Woes

The SEC is pursuing Big Four CPA firms who perform audits on Chinese firms which then report less than stellar results. 

Sure enough the same day I added this section I have already found another post. SARBOX does not address Auditor Indpendence. 

We will be adding to the list between now and the start of the Ethics Class in the Spring, 

Santa with help from Professor Elam  is counting who's been naughty and nice....

 

 

Comments

[Marisol Reyes]

There are so many candidates from different categories so it will be difficult to say who is the worse.

[Dennis Elam]

Lance and Rita deserve special recognition I think

[C Kingsley]

It isn't a question of who is worse, it is not even a question of how much, how many they hurt. Consider Rita, so she bilked a small city for 20 years big deal. How much did Tammany Hall do in NY? How much has Chi town aldermen done over the last 200? My point is this stuff is very minor with very limited impacts compared to the old school graft and greed this nation is used to.

Ask yourself this question do you remeber/know about ABSCAM? I do but unless you are over 40 the chances are zero. For those that wonder, ABSCAM was an FBI sting that netted several US congress people taking bribes from OPEC countries. Consider the implications of that compared to what Lance did? So he doped in a professional career is that more "evil/wrong" then a congress person accepting bribes from a foreign government?

[Luis Martinez]

Dr. Elam. You have quite a list here! I am more bothered by the lack of significant outrage over these unethical characters (not that the perpetrators of these violations of public trust don't deserve punishment, mind you). How is it so many of those you listed are still in office or still on the streets? Inconceivable!

[Dennis Elam]

Luis

Good question. One answer is my observation serving as a bankruptcy trustee for five years. on television all government prosecutors are true blue jump into the fray and have it hands on types. In reality as Colleen Rowley noted, they are much more concerned with their personal careers, will doing A get me to B? Winning a case will, trying a case and losing, not so much. And so we have unequal enforcement. As you say a lot of these types are still out walking around while Jeff Skilling sits in jail.

[הנהלת חשבונות]

In my opinion the idea of opening more categories very useful. Makes it easier to find the topic that we are looking for.

[Carmen Aguilar]

Barry Minkow, wow, will he ever learn, I think after you fool millions of dollars from investors people would think twice about trusting you. I guess youtube pressure works.

[Dennis Elam]

Caarmen

as my wife says, these leopards never lose their spots, another student a few semesters back also commented that minkow was looking suspicious again

[Gilbert Alvarez]

Dr. Elam,
I agree with L. Martinez. There should be more outrage with these criminals.

However, on a positive note, what is the opportunity cost for a ponzi scheme of 380 million or, lets say 3 yrs hard time in a nice prison with better facilities + spouse visit :) than we provide to those who serve (get some).

I guess I would consider the 380, never return it, and serve a 3 yrs hard time in a very nice prison, come out rich, and live happily ever after.

There should probably be harder sentences issued to those who do this. Maybe it would occur less.

[Dennis Elam]

and then there is richard fuld former ceo of lehman, fuld paid himself $300 million and then the next year the firm went broke and he walks free today, wow